Administration Document Indicates Revenue Department Knew Tax on Digital Downloads Wasn’t Legal

NASHVILLE, TN – The Tennessee Republican Party today called on the Bredesen administration to stop trying to slip a new tax on digital downloads past the legislature by calling it a “technical correction” to the tax code – and to come clean on why it has been forcing some companies to collect the tax for the past four months even though the Department of Revenue said as recently as mid-March that digital downloads “are not subject to the sales and use tax.”

“The Department of Revenue has been talking out of both sides of its mouth on this issue, and it needs to stop,” said Bill Hobbs, communications director for the TRP. “The Revenue Department told companies that state law required them to collect the tax starting January 1, but a comprehensive ruling issued March 12 by Revenue Commissioner Reagan Farr explained in great legal detail that digital downloads are not subject to the tax.

“Now the Department is trying to impose the tax – which it has been collecting since January 1 – via the ‘technical corrections’ legislation that the Bredesen administration files annually at the end of each legislative session. Frankly, that’s a lousy way to enact new tax policy,” Hobbs said.

“It never ceases to amaze us the hoops that people will go through to try to impose new taxes,” Hobbs said.*

Two years ago the Bredesen administration used the ‘technical corrections’ legislation to slip a $64 million tax incentive for Nissan past legislators without telling them what the legislation really did. Last year the Bredesen administration levied a new tax on the sale of propane for home barbecue grills via the ‘technical corrections’ legislation.

“States with big technology industry are rejecting proposed taxes on digital downloads,” Hobbs said. “Tennessee, which has a music industry dependent on the sale of music on CDs and over the Internet, and which has a goal of attracting more technology companies, ought to do the same. And the Bredesen administration and its Democrat allies in the General Assembly should stop trying to enact new taxes via secretive, deceptively-titled last-minute legislation.”

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* On April 28, the Knoxville News Sentinel quoted Reagan Farr as follows: “It never ceases to amaze me the hoops people will go through to try to avoid taxes.”

Resources For The Media:

The Department of Revenue issued a ruling letter March 12, 2008, explaining in clear legal terms why the digital downloads are not subject to the state’s sales and use tax, even though the state started forcing companies to start collecting the sales tax on digital downloads on Jan. 1, 2008. You can read that ruling letter here. The key sections are highlighted on pages 6 and 7, which state categorically that digitally downloaded music is not subject to the state’s sales and use tax.

Bredesen Considering Taxing the Songs On Your iPod – TNGOP.org, April 25

Digital download tax causes mix of confusion - Nashville City Paper, April 25

Download Tax Called ‘Correction’ – Knoxville News Sentinel, April 25

Tax Bill Would Generate Millions – Knoxville News Sentinel, April 28